Abuse From Patent Pools

By Zack Christenson — Mr. Christenson writes on digital tech issues for the American Consumer Institute Center for Citizen Research

While patent talks in D.C. remain focused on “patent trolls” and the prolonged efforts in the Senate to mark up a counterpart bill to the already-passed Innovation Act, the damaging effects of another patent area loom large for consumers.

Thanks to something called “patent pools” you could be overpaying for many consumer goods. Remember that new television you bought your niece last Christmas? It turns out you may have overpaid, according to some, by as much as forty dollars. Well, you and everybody else who bought digital TVs, converter boxes, and other products containing digital television receivers.

Each and every digital television or products containing digital receivers — which is every product on the market today – requires, by federal regulation, a digital standard patent developed by MPEG LA’s Advanced Television Systems Committee (ATSC) pool. This in turn requires licensing and royalty payment from MPEG LA’s ATSC patent portfolio. The royalty for this patent is a lofty $5.00, compared to similar broadcasting standards in Europe and Japan of around $1 per unit.

The exorbitant royalty fee inevitably leads to consumers paying inflated prices for TVs and other standard devices in most households, offices, and other businesses. A coalition filed a petition with the Federal Communications Commission (FCC) in 2009 to revisit the rules for digital television patents. The coalition asserted that consumers pay $20-$30 more per digital TV in the U.S., because of inflated patent license fees for digital tuners and other essentials in TVs and converter boxes. They estimated the same would cost $1 per unit in other countries. And, what make matters worse are that one-quarter of the patents in the pool have already expired, which means that the pool is being used to extend the monopoly life of patents while giving no discounts in the royalties paid by manufacturers. These higher manufacturing costs mean that consumer will pay higher retail prices for these goods.

This technology that the ATSC pool licenses is extremely widespread and common. In fact, the FCC requires all TVs and tuning devices sold in its market to include an ATSC tuner. However, the ATSC patent pool’s administrator allegedly uses litigation to coerce licensees to agree to excessively high royalty fees. ATSC leverages its “standard essential patent” designation to levy infringement claims against innovators, ultimately hindering the growth of the digital economy.

Patent pools themselves aren’t inherently problematic. They allow for efficient collective action from manufacturers who would have otherwise had to reach independent agreements with dozens of different patent holders. Indeed, the pools can even protect against rogue actors—who own just a fraction of a new technology—and might otherwise try and extort royalties from well-meaning innovators.

But policymakers and regulatory agencies need to keep a watchful eye on these entities, as several technology patent pools are exposed as being at best, inefficient, and at worst, anti-competitive.

These patent pools can too easily leverage their monopolistic power, in the case of ATSC a power granted to them by the government, to collect unjustly high royalties. Innovators and technologists seeking to access the protected required technologies are still forced to pay well-above market value for this technology – a technology that is available almost everywhere else in the world at a fraction of the cost.

More worrisome still, there is mounting evidence that patent pools are beginning to look and act more like Patent Assertion Entities. With pooled patents divided amongst several shell companies, the pools are beginning to “troll” for revenue by opening countless legal battles and doing everything they can to make life hard for innovators.

Despite the fact that the DOJ has set out a short 4-point litmus test for a fairly administered patent pool, too many examples like ATSC are getting exposed each day. While, at their core patent pools were designed to improve access to patents and enhance efficiency, these patent pools have quickly turned to rent-seekingand other predatory practices. Only a few steps away is a world where patent pools become yet another tradable financial instrument, further blurring the lines of patent ownership, and becloud the patent-use process.

Policymakers need to quickly wrap their hands around the patent pools issue, ensuring that the pools always exist with consumer benefits in mind, and always serve to enhance and incentivize innovation in America.

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